China orders local governments to ensure repayment
2010-Jun-14 10:31:23

China ordered local governments to ensure repayment of debts by their financing units and concentrate on completing projects already under way.

Financing units that fund only public projects and rely on fiscal income to repay debt should stop spending, the State Council said in a statement on its website on June 13.

Fiscal stimulus started by the central government in 2008 led to a surge in spending by local authorities. Their total borrowing, mostly via financing vehicles, now amounts to roughly $900 billion, $150 billion more than a year earlier and equivalent to almost 20 percent of gross domestic product, Fan Gang, former adviser to the People's Bank of China wrote on June 2 in China Daily.

Local financing vehicles have "played an active role in infrastructure construction and in tackling the international financial crisis," the State Council statement said. "Yet, it led to an expanding scale of debts and irregularities."

Financial institutions should stop lending to local- government financing units without "stable" cash flows and should meet government's capital requirements, it said.


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